In 1998, it was estimated that the top 100 global corporations had a value of purchases and cash advances of 32.5 billion dollars that was charged to their corporate cards. A corporate card is typically a credit card or charge card used by employees to pay for travel and entertainment expenses, for example. These global corporations also make use of purchasing cards for use in purchasing supplies and equipment needed by the corporation. The dollar value charged to these corporate cards and purchasing cards each year is enormous. Not surprisingly, the major organizations through which such cards are issued (e.g., Visa, MasterCard, American Express, and Diners Club) are vying for a portion of this business.
For a financial institution (e.g., a bank or similar organization) that is not part of a unified global company it can be difficult to bid on this card business for a multi-national corporation or a governmental agency. These financial institutions which issue such cards (henceforth referred to as “card issuer”), usually only issue cards in their own country, i.e., their principal country of business. Unfortunately for these card issuers, multi-national corporations are requiring that a corporate or purchasing card be issued to their employees in many different countries. For example, a multi-national corporation such as IBM may have employees not only in the United States but also in fifty other different countries, and may also have eight or more main offices, each in a different country. When such a multi-national corporation releases a request for proposal (RFP) to implement a corporate or purchasing card program, a local U.S. card issuer often cannot respond to such an RFP because they would be unable to supply the required services in all the different countries required. Even though the local U.S. card issuer would be more than happy to implement the U.S. portion of such a program for IBM and support only the domestic business, it may be unable to submit a competitive bid, as it cannot support the international portion and offer a global business solution to the multi-national corporation. In other words, a local card issuer often cannot meaningfully provide the global services required by a multi-national corporation and, as a result, it may lose out on receiving the domestic business as well.
Another difficulty in responding to an RFP from a multi-national corporation is that the corporation may expect a response (including proposed agreements) within a short time frame, often within two to three weeks of issuance of the RFP. A local card issuer that does not have a global presence or an ability to line up a counterpart bank in a different country would find it extremely difficult to respond to such a request within the required time frame.
Governments also have needs for global card programs. For example, most all governments have foreign service officers serving in countries around the globe and many have military personnel serving overseas as well. As a result, governments are also looking to provide these overseas workers with payment vehicles, like credit and charge cards, that can help them manage their overseas office and military budgets and spending more efficiently.
In addition, the U.S. government, for example, may have prohibitions on using card issuing institutions that are not U.S. based for purposes of issuing such credit or charge cards to their overseas personnel.
In addition to a local card issuer finding it difficult to bid on a global card program, there are other difficulties. For example, multi-national corporate credit or charge card accounts are far more complex then a regular consumer credit or charge card account because of the variety of agreements that need to be signed. In addition, assessing credit risk of the individual cardholder and/or company subsidiary in foreign countries can be challenging. Furthermore, card issuers must comply with local regulations.
Another major difference between consumer and corporate cards is the amount and quality of data that must be collected for each transaction due to requirements imposed by the corporations. For example, a corporation may require itinerary details about airline flights and an itemization of charges to hotel bills in order to assist the corporation with analyzing its expenses. Furthermore, on purchasing cards, a multi-national corporation may request substantial detail about all transactions, including any taxes paid in order to be able to claim a rebate for value-added tax purposes. Such requirements can complicate the ability of a local card issuer to service and provide a global card program. A card issuer with only a local presence and even one with limited global presence will find it much more difficult to meet these requests that often span many countries. In sum, local card issuers often find it difficult to win the global business of multi-national corporations because the accounts are much more complex, require more intensive data gathering, and the local card issuer often has no global presence or servicing capabilities.
This difficulty encountered by local bank in a given country in responding to a multinational request for global issuance of corporate or purchasing cards can also extend to a large international bank that has a local presence in a variety of countries. While many of these international banks may have a local presence in each country, their processing and client servicing capabilities are often very locally driven. More often than not, responsibilities over different lines of business of a large multinational bank do not cross between branches in different countries. This leads to difficulties in preparing a bid document, difficulties in understanding the bank's local capabilities, uncertainties in assuring a consistent level of customer service, etc.
To circumvent some of these problems, a bank may negotiate custom deals with other banks in other countries in order to provide the card issuing and servicing required to respond to a multi-national corporation's request for global issuance. For example, a U.S.-based bank with a client desiring corporate cards to be issued to employees in the U.S. and France may negotiate a bilateral one-time agreement with a French bank in order to provide a card program both in the United States and in France. These agreements, however, are by no means standardized, and typically can be quite cumbersome and time consuming to arrange. The data and servicing arrangements provided to the employees of the corporate client from these arrangements may also not be uniform or consistent. Moreover, enforcing consistency up to the levels expected by the multinational client is often problematic. While such arrangements can occur between banks of two different countries, agreements between three or more banks in different countries are much less common and obviously much more complex to successfully arrange and negotiate.
In summary, the problems with prior techniques are quite daunting, and include such issues as: a local bank may lack territorial coverage; a bank may not know its capabilities or those of its potential partner banks; the local bank may not be able to assemble a bid quickly and put multiple agreements between different partners in place within the time required to meet the demands of a potential client; the bank may not be able to guarantee a consistent standard of customer service; lack of standard card features; and the bank faces inconsistent and poorly organized data gathering techniques and systems for international card programs.
The above has addressed the difficulties with prior techniques primarily from a bank's perspective, i.e., why it can be difficult for a local bank to bid on and successfully win an RFP from a multi-national corporation. Equally important is the motivation for multi-national clients and understanding from the perspective of their specific needs. The multinational client requires the following four important components: a management information system (MIS) that encompasses a global approach, an account manager or executive that is responsible for the entire global relationship, a global approach to pricing, and quality customer service that is consistently provided across the entire program.
First, because a multinational corporation must be able to analyze its expenditures globally for all merchants with whom it does business, the information and data that arise from expenditures on a card program must be truly global and comprehensive. For example, a multi-national corporation may require a breakdown of all airline travel by individual carrier for all of its employees all over the world. Corporations use such global information not only to reduce their expenses, but also to help in negotiation to obtain the best corporate-wide pricing with a global merchant. Corporations need a consolidated MIS report of all local data, aggregated at the highest level for global reporting. Unless the card issuer has a global reach, it is difficult to gather all local country data, standardize it, aggregate it and produce a consolidated global MIS report for the multinational client.
Second, a multinational client would also like to have a single point of contact that is responsible for all their questions and maintenance for a global card program. If, for example, a multinational client has employees in twenty-five different countries, it is not efficient nor convenient to have to deal with twenty-five different card managers (or more) regarding problems with the card program in these countries. A client would naturally desire having a single global account executive who is responsible for the entire global program and has the authority and ability to deal with and solve specific questions or problems.
Third, clients also wish to have a global price or contract which takes into account any fees that are assessed, rebates granted or other. For example, if a client does not wish to pay annual card fees on a global basis, it can be a problem for an issuing bank in a single country in which a small number of cards are issued insists upon annual card fees. To satisfy the multinational client's desires, the card issuing bank would like to be able to promise to the client that no card fees will be assessed anywhere in the world. However, there may still be the need for the card issuing bank to accommodate the local card issuing bank in the other countries that insist on assessing card fees. Regarding rebates, a multi-national client with a large volume of charges on their cards will expect rebates from these charges, often on a seller by seller basis. A client may insist that the formula for calculating the rebate amount be negotiated globally and may require that the volumes going through particular sellers be applied worldwide. A single global price that includes any card fees and takes into account rebates is appealing to a corporation.
Fourth, a multinational client requires that customer service be available locally and of significant quality. As an example, a German company may require that a German branded card be issued to its employees, and that customer service for its German employees be provided locally, with German speaking customer service representatives, that statements be written in German, and that all transactions be denominated in local currency. Further, the local customer service center must be familiar with all local laws, regulations and customs. In addition, for transactions that take place within Germany, the merchant will likely wish to be paid in Deutsche marks or Euros, the multinational employee cardholder wishes to have their statement denominated in Deutsche marks and the client company wishes to pay their expenses in Deutsche marks. Local service also means handling all questions, increasing credit or spending limits, handling lost and stolen cards, handling fraud issues, etc. This need for local servicing applies to countries where the multinational has many thousands of employees and even for countries where that may be only a handful of employees who will be issued cards. The inability of a bank to provide such local servicing even in the market where a few cards are required may mean that the bank will not win the global business from the multinational client.
Certainly there are potential solutions to the above difficulties but they are often not optimal. It could be possible for a local bank (e.g., a U.S.-based card issuer) to issue its own corporate card in all foreign countries. This arrangement can be problematic because the local bank in a given country will normally find it very difficult to service and provide all of the processing required in all locales, including the multiple currencies and languages required for servicing the accounts on a local basis in all countries. This arrangement does not provide the local presence that is required. Legal compliance and local customs also provide substantial impediments to cross-border issuance. In addition, because the card issuing institution is not considered local in the overseas markets, transactions in those countries may incur foreign currency conversion fees. Moreover because of the distances involved between processing centers and residences of cardholders, statements and cardholder payments may take longer in transit between recipients, resulting in possible late fees. In addition, moving funds internationally to make payments on accounts can be costly and time consuming.
One approach would be to allow a local bank to issue cards in several countries, while engaging the services from a global card processor that processes all card transactions in all countries, or at least in several. Although theoretically possible, it can prove difficult to find a processor that will process in enough foreign countries. Typically such a processor will process transactions from the major countries but may not choose to process cards from particular countries, or if cards are processed in some countries the format and information supplied may be different from the major countries. For these reasons, for a local bank to issue its cards in all foreign countries is not especially desirable or workable as a solution.
Other approaches are possible but are also not ideal. It is possible to set up an international program whereby major banks in foreign countries are pre-qualified to participate in the program as long as they meet some threshold level of corporate card services. Then, for example, when a lead bank needs to negotiate an agreement with a client who desires corporate cards in ten different countries, the lead bank has access to the nine points of contact at the other banks in the foreign countries. The lead bank may then contact these other banks, propose an agreement, and/or negotiate details on behalf of the client. Although this arrangement is feasible, it still suffers from the drawbacks mentioned above. Namely, the client may eventually deal with ten different points of contact, will have different cards in ten different countries, will have ten different levels of customer service and may have to negotiate ten different prices for these services. Furthermore, there may not be adequate communication between the banks, or the banks may not have implemented standard data formats or desire to undertake the expense of doing so for a small amount of business on an ad hoc basis—this would mean an issuer may not be able to provide a standard data format for a client that desires a global management information systems approach. As mentioned, there would be no single global point of contact, no single global price, etc. Most importantly, the lead bank may not know the capabilities of the foreign banks, or even if apprised of these capabilities, it may not be able to guarantee a particular type of product or level of service to the client. Each individual bank in each country would be able to provide local servicing, but overall this approach does not meet many of the needs of clients addressed above.
Other entities have attempted to overcome these difficulties in different ways. For example, Citibank, which issues corporate and purchasing products, has branches worldwide. When it comes to responding to a request from a multi-national client, Citibank does not have to coordinate amongst a number of non-affiliated companies worldwide. Because they are a single entity, they know their capabilities, they know where they can issue cards, what the cost will be and when they can respond. Because it is a single entity, they have better control over individual branches and can coordinate much more easily. The organization Diner's Club also issues corporate and purchasing cards; it is owned by Citibank and benefits from Citibank's worldwide branches as well. American Express also issues corporate cards as a monolithic entity similar to Citibank. American Express has local subsidiaries in every major country, with local processing, card issuing, and local services and can coordinate to respond to a global RFP and can implement a global, standardized, integrated solution for the client. MasterCard does not itself issue cards and therefore relies on the capabilities of its member banks.
Thus, while a card issuer in a given country may have relationships with card issuers in other countries, its ability to compete for multi-national corporate and government clients is severely limited by lack of a well-defined process for assembling bids, pricing bids, managing customer service, as well as the lack of a comprehensive global processing and servicing capability.